Given currently:
Cost of equity ke=10%k_e = 10\%ke=10%
Post-tax cost of debt = 4%
WACC = 7.6%
Gearing D/(D+E)=40%D/(D+E) = 40\%D/(D+E)=40%
Tax 20%
New gearing after raising more debt: 50%.
Under Modigliani & Miller with tax (no distress costs):
Cost of debt remains constant as gearing changes (until very high levels of debt). So
# F is TRUE, A is FALSE.
As gearing increases, the tax shield on debt becomes larger, so WACC falls.
# B (WACC will decrease below 7.6%) is TRUE, E is FALSE.
Higher gearing increases financial risk borne by shareholders, so cost of equity rises with more debt.
# C (cost of equity will increase above 10%) is TRUE, D is FALSE.
So the correct set is B, C and F.